Dividend-Paying Stocks
While the focus of the panel discussion was on alternative income sources, traditional stocks and bonds were also part of the conversation. Regarding equities, some industries and sectors will benefit from rising rates while others won’t, said Chuck Martin, portfolio manager at AGFIQ Funds. One likely beneficiary will be banks, which should benefit from the steepening of the yield curve where they pay out low rates while charging higher rates, so they’ll have a higher net income rate. “Their business will improve, which enables them to pay out higher dividends,” he said.
“That’s different from REITS, which are highly levered, and they might have variable rates in the mortgages they hold,” Martin added, noting that REITs could be adversely affected in a rising rate environment as more of their cash flow is eaten up by interest rate payments on their debt.
“You want to pay attention to the underlying holdings of ETFs and understand how certain holdings will be impacted by changes in interest rates,” Martin said.
Regarding valuation concerns, he noted that even if equities appear to be overvalued, the economy is on good footing and companies should be able to grow revenue and dividends in a growing economy.
“And a decreased tax rate means there will be more cash flow available,” Martin said. “So even if these securities look overvalued, they have the ability to grow their dividends going forward.”
Fixed Income
Mike Akins, senior vice president and head of ETFs at Alps Advisors, said investors shouldn't abandon bonds in their pursuit of income.
"In that search for yield, don’t forget that there’s not a replacement for fixed income," he said.